(Corrects the order of engines from 100 to 150, adds the word “new” in paragraph 4)
Tim Hefer and Nathan Gomez
(Reuters) – The head of aircraft leasing giant AerCap predicted on Wednesday that tensions in global jet markets will last until the end of the decade, fueled by supply chain problems and production conservatism among engine makers.
Air travel demand has rebounded from the pandemic while planemakers struggle to return to production levels seen before the health crisis severely disrupted markets.
“I believe it will be until the end of the decade before aircraft manufacturers and the supply chain get their act together and address this issue; I suspect it will be 2030,” CEO Angus Kelly said at the company’s investor conference.
He spoke after the world’s largest leasing company took a gamble on ongoing aircraft repair shop bottlenecks by agreeing to buy 150 of CFM’s new replacement LEAP engines, which power all Boeing (NYSE:) and some Airbus single-aisle jets.
The engines will be managed by Shannon Engine Support, a joint venture between parts supplier AerCap and a French company. Safran (EPA:), which along with GE Aerospace owns CFM.
A shortage of spare engines, especially those made by CFM rival Pratt & Whitney, has forced airlines to ground planes while waiting for repair space that is already in short supply due to faster-than-expected wear and tear in the harsh climate.
Kelly, who oversaw AerCap’s gradual transformation from a major holding of the bad assets of defunct Irish leasing empire GPA to the world’s largest lessor through acquisitions, explained the stakes involved in managing service delays.
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AerCap claims that it costs more to maintain the aircraft in MRO or repair stations than it costs to purchase it.
“MRO shops are like dentists. They only get paid when they open something, take something out, and put something back in. The difference with these engines is that it costs a million dollars to put something back in every time,” Kelly said.
“And if you don’t know what you’re doing, you’ll end up spending millions more. You will find yourself going to MROs that you have no leverage with, and you will be at the back of the line.”
Despite announcing its first cash dividend, Kelly said share buybacks would remain the primary method of returning resources to the Dublin leasing company’s shareholders.
AerCap said its board of directors has approved a new $500 million share repurchase program through Dec. 31.